Cooperation through unproductive costs

The Review of Economic Studies

What do prison gangs, Jehovah’s Witnesses, and Ultra-Orthodox Jews have in common? All of these groups require highly-visible “costs” that reduce their members’ opportunities in the outside world. Prison gangs often require tattoos, Jehovah’s Witnesses demand significant time from their members, and Ultra-Orthodox Jews require a style of dress that is far from fashionable. Examples of groups that have similar costly requirements abound: fraternities haze their members, tribes perform ritual scarring, cults require public proselytization efforts, and so on. To an economist, it is not obvious why groups would require such costly behavior from their members. How is it possible that groups can not only form, but thrive, by requiring their members to reduce their outside options?

Prison gang tattoo

In a 1992 article, Laurence Iannaccone was the first to provide an economic rationale for such behavior. He argued that prohibitions on otherwise normal behavior — including restrictions on dress, diet, grooming, entertainment, economic activity, sexual conduct, and social interactions — served a distinct economic purpose. This is, namely, that highly-visible prohibitions help groups keep out people who want to enjoy the benefits of group membership without contributing to the group. This is important for the survival of these groups, as many of them thrive precisely because all members are committed to the cause.

Yet, the very nature of these groups makes it difficult to ignore alternative explanations for their behavior. Certainly, most insiders would not claim that the costs they face are economic ones, but are time-honored traditions, hidden truths, or directly productive behavior. Conversely, critics of these groups emphasize ignorance, indoctrination, coercion, or outright irrationality. Others claim that most examples of seemingly bizarre beliefs and behavior simply reflect atypical preferences.

We attempted to discern between these competing hypotheses by formulating a laboratory experiment that is completely devoid of ideologies, deviant tastes, intense interactions, outcast identities, or any other special feature of cults, communes, clans, and the like. In this experiment, subjects were asked to divide a pool of money between contributions to their group and their own account. Like the groups we were concerned with, any contribution to the group were multiplied, so giving to the group increased the overall wealth of members. Of course, there was also a significant incentive to keep all the money for oneself while benefitting from the generosity of one’s group members. This is precisely the type of problem faced by cults, communes, and the like: they provide “goods” to group members, but these goods are available only if everyone contributes.

The experiment described above is well-known in experimental economics as a “voluntary contribution mechanism.” In our experiment, we added a twist: subjects can also choose which groups to enter, with groups differentiated by the portion of money one kept when they contributed to their own account. In “high sacrifice” groups, every dollar that is kept turns into a payment of fifty-five cents at the conclusion of the experiment. Subjects in these groups were figuratively burning forty-five cents for every dollar that they did not contribute to the group. Economically, this is similar to what happens to members of the groups described above. For example, getting a highly-visible tattoo may make one a member of a prison gang (giving access to all of the associated benefits), but it also greatly reduces the wages one can make when out of prison.

One might ask, “Why would anyone voluntarily join a group where a good portion of their private (non-group) money is burned?” Iannaccone’s insight suggests that these groups thrive only if people entering these groups give more to the group once they are a member. In our experiment, this is precisely what we find. When given the option to effectively destroy a portion of their private productivity, with no compensation but the prospect of being grouped with like-minded others, more than half of all people we determined to be “cooperators” did so. But “non-cooperators” overwhelmingly rejected the offer, thus enabling cooperative “sacrificers” to greatly increase their group’s output. Nor was this the only effect; contributions averaged around 85% of total endowment in the most costly groups, 35% in the moderately costly groups, and 15% in the least costly groups. In our experiment, these seemingly unproductive costs thus did their job: they prevented people who do not give to the group from entering, and they encouraged greater giving to the group once groups were formed. In short, we were able to carry a popular theory into the lab and subject it to a relatively clean test.

Our results demonstrate that sacrifice can enhance collective action and raise individual welfare, even in an austere laboratory environment. It does not require a specific set of beliefs, shared identity, or spiritual context. Sacrifice is a means by which any group can potentially harness the commitment and collective capacity of its members. Whether it is military units or sports clubs, prison gangs or organic food cooperatives, we shouldn’t be surprised that our closest knit, most successful groups are built around a shared sacrifice.

Jason A. Aimone, Laurence R. Iannaccone, Michael D. Makowsky, and Jared Rubin are authors of “Endogenous Group Formation via Unproductive Costs”, published in The Review of Economic Studies. Jason A. Aimone is an assistant professor at Baylor University and a post-doctoral researcher at the Virginia Tech Carilion Research Institute. His research uses the tools of experimental and neuroeconomics to explore economic behavior and decision-making. Laurence Iannaccone is Professor of Economics at Chapman University, Director of Chapman’s Institute for the Study of Religion, Economics, and Society, (IRES) and the President of the Association for the Study of Religion, Economics, and Culture (ASREC). Michael D. Makowsky is an assistant professor at Johns Hopkins University. His research explores the variety of ways in which groups form and the patterns that emerge within their constituent and collective behavioral norms. Jared Rubin is an assistant professor at Chapman University. His research focuses on relationship between political and religious institutions and their role in economic development.

The Review of Economic Studies aims to encourage research in theoretical and applied economics, especially by young economists. It is widely recognised as one of the core top-five economics journal, with a reputation for publishing path-breaking papers, and is essential reading for economists.

Recent Comments

Franz Geithner12th July 2013

Excellent article. Perhaps you could edit the third sentence: “Jehovah’s Witnesses demand significant time from there members (…)”? Change “there members” to “their members”, or perhaps such linguistic pedantry should be found only in the OUP’s language archives?

Jerry14th July 2013

This does not app;ly to Jehovah’s Witnesses. No record is keptof contributions nor are we dunned for money. It isreallyall by the Holy Spirit moving us to put our money to good work. Nobody is paid for their time or gas for cars in their work. It is truly an organization supported by voluntary donations. There is not 85% holdback. This is the best organization for money I ever saw, bar none.

In fact, the name is a word of action. Jesus said before he ascended, “You will be witnesses in all the Earth.” We are the only ones, who as an organization, are all Witnesses for Christ.Why not talk to Jehovah’s Witnesses next time they stop. We will show you from the Bible what God wants us to do.